2020 has so far been no ordinary year. Politicians, economists, almost everyone, including FTSE 100 investors, would accept that the Covid-19 pandemic has come with substantial health and economic costs. In May, the Bank of England warned the UK economy will likely head toward one of the worst recessions on record.
Various lifelines have been offered to individuals and industries by the government. They are likely to make the potential economic damage less severe than it could otherwise have been. However, hardly any business or industry will be fully immune to a recession. But some may fare better than others. So today, I’d like to discuss three industries that may help you recession-proof your portfolio. Within the industries, I’ll bring to your attention companies that pay dividends.
Health care is typically recession-proof The current pandemic has reminded billions around the world of the importance of health. FTSE 100 investors have access to a wide range of healthcare stocks. AstraZeneca is now our largest company, followed by GlaxoSmithKline. Both have enviable drug pipelines. They have also been in the news with their current work on a potential vaccine against the coronavirus. At present their current dividend yields are 2.6% and 5.1% respectively.
You may also want to research medical equipment manufacturer Smith & Nephew (LON:SN). It specialises in surgical devices and joint replacement systems. Its dividend yield is 1.9%. The other company to keep on your radar screen is London-based Hikma Pharmaceuticals (LON:HIK). It manufactures non-branded generic and in-license medicines and offers a dividend yield of 1.6%.
We all rely on utilities Income investors typically love big utility companies for dividends. But in addition to the passive income, those FTSE 100 shares may also help your portfolio handle an upcoming recession. After all, we all need to use electricity, gas and water to continue our lives.
Multinational electricity and gas utility company National Grid (LON:NG) has operations both in the UK and the US. Severn Trent (LON:SVT) provides water and waste water treatment and operating services to utilities, municipalities and commercial customers. Exeter-based Pennon Group (LON:PNN) is another water utility and waste management firm. Warrington-based United Utilities is the country’s largest listed water company. With respective dividend yields of 5.5%, 4.2%, 4.1% and 4.9%, they all remain favourites among investors.
FTSE 100 is home to sin stocks Sin products typically include gambling, tobacco, and alcohol. Due to the addictive nature of these products, sin shares are usually considered recession-proof. These companies can typically manage their cash flow levels and expected returns in economic downturns better than many other businesses.
Drinks giant Diageo (LON:DGE) owns some of the most widely-recognised brands. They include Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Don Julio, and Guinness. Tobacco giant British American Tobacco (LON:BATS) is one of the largest is FTSE 100 constituents. Both companies have increasing overseas operations, especially in emerging countries. Their respective dividend yields stand at 2.5% and 7.3%.
With its dividend yield of 1.9%, Flutter Entertainment is another stock to watch. It is one of the world’s largest gaming groups. Since March, sports fixtures have been cancelled worldwide. Yet as economies begin to open up, the company is likely to see revenue growth in the coming months.
Foolish takeaway As a potential recession approaches, investors may want to turn to stocks that offer revenue stability and earnings growth. I believe such FTSE 100 shares should be part of prudent investors’ portfolios.
The post FTSE 100 investors: I’d consider investing in these industries and dividend shares in a recession appeared first on The Motley Fool UK.
tezcang has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK owns shares of Flutter Entertainment. The Motley Fool UK has recommended Diageo, Hikma Pharmaceuticals, and Pennon Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020